Should you declare bankruptcy? People should pay their debts, however, sometimes people find themselves in situations beyond their control and paying debt becomes unrealistic. This can happen because of a business failure, relationship breakdown, unemployment, tax or student loan debts that have grown unmanageably large, or credit card debts that seem to increase not matter how much you try to pay back. Bankruptcy usually lasts for 3 years, and it normally stays on a person’s credit record for 7 years (indefinitely if you have had more than one bankruptcy). This means that for 3 years you will be unable to leave New Zealand without permission, and you will face other significant restrictions. For at least 7 years you may be unable to borrow money. If you become bankrupt you cannot usually be self employed and you may not be able to work in some professions. Other professions are unaffected. There are sometimes ways to restructure a self employment situation that effectively allows a person to keep on working in their usual job while bankrupt. Some people lose their homes; others are allowed to keep them. If you have large debts what is the best option for you? Obviously if you have a $300,000 student loan debt and other debts that you struggle to pay, the reality is that you are unlikely to ever repay them. They will hang over you and cause you stress forever if you don’t do something about it. In that situation it may be best to take control of your life and go bankrupt. Bankruptcy can also be the best answer in situations of much smaller debts. If, for example, you earn $50,000 a year, but after living expenses and tax you are left with $2,000 a year, if you have debts greater than $14,000 (7 years times $2,000 per year), you may be better off, in the long run, declaring bankruptcy. Not only will bankruptcy stop creditors harassing you, it means that when you are discharged your debts disappear (in most cases). The effect on any assets that you own, possible inheritances, your ability to work during the bankruptcy period, and financial dealings prior to bankruptcy are all factors that need to be carefully considered prior to making a decision to become bankrupt, however, it is clear that for some people bankruptcy is the best way to start afresh. The possibility of bankruptcy is often a useful bargaining chip in seeking to negotiate a resolution of tax or other debts. We often advise people on the pros and cons of bankruptcy in their particular situation and provide advice on bankruptcy planning. For $150 you can ensure that you are fully advised on whether bankruptcy is a good option for you. Please talk to us in confidence if you would like advice on your situation.